1. PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES WORKSHOP 2009
THE USEFULNESS OF ANNUAL REPORTS TO OVERSIGHT IN THE ACCOUNTABILITY CYCLE
Jayce M Nair
National Treasury: Republic of South Africa
5 August 2009

2. Overview of Presentation
The Constitution and oversight
PFMA requirements for tabling of annual reports
Roles of Portfolio Committees and SCOPA
Other role-players in evaluation process
Annual report oversight process
Interrogating & evaluating annual reports
Oversight of technical quality of annual reports
Oversight of entities performance
Interpreting audit and financial information

3. The Constitution and
Oversight

4. Introduction Legal framework - Constitutional
Section 55(2) says the National Assembly:
“must provide for mechanisms to ensure that all executive organs of state in the national sphere of government are accountable to it; and to maintain oversight of the exercise of national executive authority, including the implementation of legislation; and any organ of state.”
Section 92(3)(b) requires that:
“Members of Cabinet must provide Parliament with full and regular reports concerning matters under their control.”

5. Introduction Legal framework - Statutory
Section 40(1)(d) & 55(1)(d) of PFMA
The Accounting Officer must submit within five months of the end of the financial year to the Minister responsible for that Department an Annual Report
Section 65(1) of PFMA
the Minister responsible for a department must table the annual report in the relevant legislature within one month after the Minister received the annual report.
Section 65(2)(a) of PFMA
a Minister who fails to table an annual report for an entity by 30 September (6 months after year end) must table a written explanation in the legislature setting out the reasons why the report was not tabled and indicating when the report will be tabled

6. Introduction Importance of legislative oversight
Are government’s priorities reflected in the strategic plans, budgets and annual reports?
Are service delivery targets aligned, measurable, related to programmes, consistent across reporting periods and presented in a straightforward and meaning manner?
In terms of alignment: Auditor-General has found improvement in the level of agreement of performance info across strategic plans, budgets and annual reports

7. Closing the Accountability Loop
Annual Reports:
Closing the Accountability Loop
Departments produce strategic plans setting out performance measures and targets Through the budget the executive indicates what funds are required to implement strategic plans
The legislatures approve the budget, and so appropriate funds for the implementation of the strategic plans
The annual reports indicate how the executive has used appropriated funds to implement strategic plans
In 2005 the National Treasury issued the Guideline for Legislative Oversight through Annual Reports to assist legislatures as they develop processes for overseeing annual reports. The following slides summarize aspects of the guidance that legislatures may take into account as they finalize these processes.

8. Roles of Portfolio
Committees and SCOPA

9. Roles: Portfolio Committees
Close accountability loop by exercising oversight of service delivery
Focus on the following:
The technical quality of the annual reports
The quality of performance info
The economy, efficiency and effectiveness of service delivery
Implementation of the entity’s service delivery improvement plan;
Evaluating management’s explanations why service delivery was not in line with targets
Typical technical focus questions for Portfolio Committees:
Was the report delivered on time?
Is the report in line with the prescribed formats?
Does the layout of the report facilitate understanding?
Is the information communicated simply and clearly?
Is the report original, or are key portions copied from previous reports?
Does the report deal faithfully with each aspect of the strategic plan?
Is each measurable objective specified in the strategic plan reported on in the report?
Is the service delivery information presented in the report reliable?
Are the performance measures robust?
Can the performance information be verified?
Can the human resource information be verified?
Was an excessive amount spent on the production of the annual report?

10. Roles: SCOPA SCOPA specialises as ‘protector of the public purse’
Focus on the following:
Financial probity
General Report of the Auditor General
Compliance with the PFMA
Unauthorised expenditure
Fruitless and wasteful expenditure
Internal control and risk management systems
Supply chain management and procurement
Major financial losses suffered by government
Corporate governance

11. Links between Committees
Committees need to share information to improve the overall effectiveness of oversight
Portfolio committees in the various clusters should consider holding joint hearings
The Public Accounts Committee should provide information to other committees on key issues raised in the AG’s General Report
Portfolio committees may consider appointing rapporteurs to brief the Public Accounts Committee on important issues it has identified in its oversight process

12. Inputs by Other Role-players in the Evaluation Process
Auditor-General
National Treasury
Constitutional institutions
Committee researchers
Stakeholders and the Public
Auditor-General
Auditing of annual financial statements
Auditing of performance information
National Treasury
Guidelines for preparing strategic plans, budget submissions (produce ENE), annual reports and performance information
Perform in-year financial and performance monitoring
Constitutional institutions
Provide inputs to the oversight hearings dealing with issues within their mandate
Committee researchers
Be familiar with the challenges, policies and other developments
Review strategic plans, budgets, in-year reports and previous annual reports
Monitor developments in their area of focus on an ongoing basis
Talk to the relevant treasury, auditors and other stakeholders
Stakeholders and the public
Request subject experts to evaluate the performance of entities

13. Input by other role-players (1)
Auditor-General
Auditing of annual financial statements
Auditing of performance information
Performance audits of selected entities
National Treasury
Annually prepares a Guide to the technical requirements for annual reports’
Framework for non financial information
Treasury do prepare a consolidated report for Cabinet on audit outcomes
Constitutional institutions
Provide inputs to the oversight hearings dealing with issues within their mandate

14. Input by other role-players (2)
Committee researchers
Be familiar with the challenges, policies and other developments
Review strategic plans, budgets, in-year reports and previous annual reports
Monitor developments in their area of focus on an ongoing basis
Talk to the relevant treasury, auditors and other stakeholders
Stakeholders and the public
Request subject experts to evaluate the performance of entities

15. Proposed
Oversight Process

16. Overview of Oversight Process
Review of AG’s General Report
Timely tabling process
Late tabling process
Preparation Phase
Joint Workshops (provincial concurrent functions)
Report Writing Phase
Announcement of completion of tabling process
Annual Report
Tabling Processes
Referral to Portfolio Committees
Tabling of Oversight Reports
Ongoing Oversight Processes
Timeline
30 September
First two weeks in October
Third week in October
First week in November
Second week of November
Follow-up Phase
Referral to Public Accounts Committee
Annual Report Oversight Process
Portfolio Committee process
Public Accounts Committee process
Day of Delivery
Tabling of a weekly update of outstanding Annual Reports
Recommendations for the preparation of the Finance Bill
Before 31 March
Hearings Phase
Last week in October
Talking points detail:
Start preparations well before 30 September
Committee staff ensure:
members have access to all relevant documents
identify and contact subject experts for hearings
Members’ preparations:
read all relevant documents
review current year’s performance compared to outcome of previous oversight process
consult with subject experts and other stakeholders
prioritise issues and questions
Committee should meet prior to hearing to:
identify key issues
identify what they want to get out of the hearing
prioritise certain key questions
Hold hearings in period 15 to 31 October
Request Minister to give an overview of the performance of the department
Options for structuring the oversight hearings:
A presentation by the Minister and/or the accounting officer and then a page-by-page review of the annual report
A presentation by the Minister and/or the accounting officer followed by a presentation by a designated member of the Committee dealing with key issues as identified by the Committee, followed by a question and answer session
A presentation by the Minister and/or the accounting officer followed by inputs by invited experts or stakeholder organisations, followed by a question and answer session.
A presentation by the Minister and/or the accounting officer followed by a full-scale public hearing, followed by a question and answer session
Each portfolio committee should prepare an Oversight Report for each entity they oversee
Oversight Reports should deal with:
Compliance with the tabling deadlines
Compliance with the technical requirements for annual reports
The usefulness of the General Information section
Comments on the entity’s reported performance
Comments on the entity’s human resource situation and policies
Key issues that the committee would like to draw to the entity’s attention as regards its performance
Recommendations in relation to any of the issues noted above
Oversight Reports should be tabled in the House not later than 14 November or, at latest, before the December recess
In certain circumstances the House may consider debating certain issues contained in the Reports
Once accepted, Reports should be sent to the relevant Minister for response to resolutions
Legislatures need to put in place systems to manage and track resolutions
Aim of such systems
to bring resolutions regularly to the attention of Ministers
to ensure Ministers respond to resolutions
to ensure issues raised in resolutions get resolved

17. Oversight preparation phase
Start preparations well before 30 September
Committee staff ensure:
members have access to all relevant documents
identify and contact subject experts for hearings
Members’ preparations:
read all relevant documents
review current year’s performance compared to outcome of previous oversight process
consult with subject experts and other stakeholders
prioritise issues and questions
Committee should meet prior to hearing to:
identify key issues
identify what they want to get out of the hearing
prioritise certain key questions

18. Oversight hearings phase
Hold hearings in period 15 to 31 October
Request Minister to give an overview of the performance of the department
Options for structuring the oversight hearings:
A presentation by the Minister and/or the accounting officer and then a page-by-page review of the annual report
A presentation by the Minister and/or the accounting officer followed by a presentation by a designated member of the Committee dealing with key issues as identified by the Committee, followed by a question and answer session
A presentation by the Minister and/or the accounting officer followed by inputs by invited experts or stakeholder organisations, followed by a question and answer session.
A presentation by the Minister and/or the accounting officer followed by a full-scale public hearing, followed by a question and answer session

19. Oversight report-writing phase
Each portfolio committee should prepare an Oversight Report for each entity they oversee
Oversight Reports should deal with:
Compliance with the tabling deadlines
Compliance with the technical requirements for annual reports
The usefulness of the General Information section
Comments on the entity’s reported performance
Comments on the entity’s human resource situation and policies
Key issues that the committee would like to draw to the entity’s attention as regards its performance
Recommendations in relation to any of the issues noted above

20. Tabling of Oversight Reports
Oversight Reports should be tabled in the House not later than 14 November or, at latest, before the December recess
In certain circumstances the House may consider debating certain issues contained in the Reports
Once accepted, Reports should be sent to the relevant Minister for response to resolutions

21. Follow-up phase
Legislatures need to put in place systems to manage and track resolutions
Aim of such systems
to bring resolutions regularly to the attention of Ministers
to ensure Ministers respond to resolutions
to ensure issues raised in resolutions get resolved

22. Evaluating Annual Reports
Interrogating &
Evaluating Annual Reports

23. Aim of Portfolio Committees’
Oversight
Clear understanding of purpose of oversight helps to achieve objectives
Fulfil constitutional obligation to hold executive accountable
Ensure departments and public entities are:
producing high quality services, economically, efficiently and effectively
complying with constitutional and/or legislative mandates, strategic plans and budgets
contributing to the realisation of government’s objectives
Gather information on the views of customers and clients
Make recommendations on improving the quality and responsiveness of services

24. The committee needs to work as a team in exercising oversight
Preparing to exercise
oversight
Oversight Preparation Checklist
Be ready -
think about the issues and information needs well in advance of the start of the oversight process.
Be disciplined
set clear start, interim milestones and completion targets.
Be aware
know about other oversight processes that may be relevant, e.g. of other departments of entities, or of provincial departments.
Be focused
tailor the oversight process to where it can have the most impact, i.e. set clear priorities.
Be intelligent
be flexible enough to take on board new issues and options should they arise in the course of the oversight process.
Be open
consult with outside experts, organisations and clients throughout.
Be forward looking
remember that the purpose of oversight is to improve service delivery in future.
The committee needs to work as a team in exercising oversight .
The oversight process is about the legislature exercising oversight of the executive in accordance with the Constitution It is NOT about opposition parties exercising oversight of government

25. Oversight of technical quality
of Annual Reports

26. Aim of overseeing technical quality
To ensure that entities’ annual reports comply with the legal and policy frameworks for:
the structuring of the annual reports
the compilation of information
tabling of annual reports

27. Necessary background information
Guide for the Preparation of Annual Reports issued by National Treasury
Familiarity with the technical terms and methods used to
describe service delivery performance
esp. economy, efficiency and effectiveness
describe human resource issues
Strategic plans and budgets for the entity

28. Typical technical focus
questions
Was the report delivered on time?
Is the report in line with the prescribed formats?
Does the layout of the report facilitate understanding?
Is the information communicated simply and clearly?
Is the report original, or are key portions copied from previous reports?
Does the report deal faithfully with each aspect of the strategic plan?
Is each measurable objective specified in the strategic plan reported on in the report?
Is the service delivery information presented in the report reliable?
Are the performance measures robust?
Can the performance information be verified?
Can the human resource information be verified?
Was an excessive amount spent on the production of the annual report?

29. Oversight of Entities’ Performance

30. Performance Focus in Annual
Report Review
When reviewing annual reports with a performance focus the following areas can be examined:
Background information
Organisational concerns and options
Evaluating past performance
Evaluating future performance
Evaluating efficiency of performance
Evaluating human resource development
Organisational concerns and options include:
How effectively does the entity contribute to the delivery of government objectives, as reflected in its mandate?
Should the mandate be changed to better reflect the priorities of government, and the needs of clients?
Is there a continuing need for the functions being delivered by the entity as a whole, and by each of its programmes?
If not, can the entity be scaled- down, or programmes be terminated?
Is there a need for new programmes?
Evaluating past performance:
Is the annual report transparent about the entity’s performance?
Or is it simply a public relations document?
Has the entity met its aims, objectives and performance targets and quality standards?
What were the reasons for any failures?
Have the entities performance targets changed over time?
Are targets increasing with increases in funding?
Are there examples of good practice in how the entity has delivered its services?
What changes have been made in the services provided to clients?
How can greater client choice be provided in future?
What are clients’ views on the nature and quality of services?
Have these views altered over time?
Evaluating future performance:
Are the entity’s objectives and performance targets linked to government’s overall aims?
Are the objectives and targets sufficiently comprehensive?
Do the performance targets drive continuous improvement?
Is there continuity in the performance targets between years?
Does the entity have too many performance targets?
Are any additional/alternative performance measures and targets needed?
How well do the performance targets measure the delivery of outputs and the achievement of outcomes?
Does the entity have the right balance between output and outcome performance targets?
Are effective information systems in place to measure performance?
How could these be improved?
Evaluating human resource development:
Has progress been made with the implementation of the Service Delivery Improvement Plan?
Is there evidence that services are improving as a result?
What has been done to fill key vacancies?
What more can be done?
What progress has been made with employment equity?
What strategies have been adopted to promote greater equity?
What is the status of the skills development programme?
Is the programme making a difference to staff’s ability to deliver services?
How much was paid out in performance bonuses?
How much did the accounting officer and other senior managers receive as performance bonuses?
Are these rewards in line with the entity’s delivery performance?
How many disciplinary matters are outstanding?
How many senior management posts do consultants fill?
Is the entity reducing reliance on consultants for routine functions?

31. Necessary background information
Information on the entity
its mandate, structure, way of operating, strengths and weaknesses
The entity’s strategic plan and budget
Information on external and internal challenges faced by the entity
Information from clients

32. Organisational concerns
and options
How effectively does the entity contribute to the delivery of government objectives, as reflected in its mandate?
Should the mandate be changed to better reflect the priorities of government, and the needs of clients?
Is there a continuing need for the functions being delivered by the entity as a whole, and by each of its programmes?
If not, can the entity be closed down, or certain of its programmes be terminated?
Is there a need for new programmes?

33. Evaluating Past Performance
Is the annual report transparent about the entity’s performance?
- Or is it simply a public relations document?
Has the entity met its aims, objectives and performance targets and quality standards?
- What were the reasons for any failures?
Have the entities performance targets changed over time?
- Are targets increasing with increases in funding?
Are there examples of good practice in how the entity has delivered its services?
What changes have been made in the services provided to clients?
- How can greater client choice be provided in future?
What are clients’ views on the nature and quality of services?
- Have these views altered over time?

34. Evaluating Future Performance
Are the entity’s objectives and performance targets linked to government’s overall aims?
Are the objectives and targets sufficiently comprehensive?
Do the performance targets drive continuous improvement?
Is there continuity in the performance targets between years?
Does the entity have too many performance targets?
Are any additional/alternative performance measures and targets needed?
How well do the performance targets measure the delivery of outputs and the achievement of outcomes?
Does the entity have the right balance between output and outcome performance targets?
Are effective information systems in place to measure performance?
- How could these be improved?

35. Evaluating Efficiency of
Performance
Are there systems to identify clients’ needs and monitor the extent to which they are met?
Has the entity delivered value for money?
Over time, is it delivering its outputs at reduced cost?
Has the entity been innovative in managing costs and improving performance?
What steps has it taken in this regard?
Is there any scope for increased efficiency savings?
Are staff hampered by internal bureaucracy?
What has been done to encourage greater flexibility and creativity in delivering services? What can still be done?
How effective have the relationships with other entities operating in the same or related areas been?
Have service delivery risks been managed adequately?
Does the entity comply with the Access to Information Act?

36. Human resource development
Has progress been made with the implementation of the Service Delivery Improvement Plan?
Is there evidence that services are improving as a result?
What has been done to fill key vacancies?
What more can be done?
What progress has been made with employment equity?
What strategies have been adopted to promote greater equity?
What is the status of the skills development programme?
Is the programme making a difference to staff’s ability to deliver services?
How much was paid out in performance bonuses?
How much did the accounting officer and other senior managers receive as performance bonuses?
Are these rewards in line with the entity’s delivery performance?
How many disciplinary matters are outstanding?
What is the age profile of these complaints?
What is the entity doing to ensure the speedy conclusion of matters?
How many senior management posts do consultants fill?
How will the entity reduce its reliance on consultants for routine functions?

37. Interpreting Financial and Audit Info in the Annual Report

38. The Annual Report Accounting Officer’s Review Audit Committee Report
Accounting Officer’s Report
Auditor-General Report
Appropriation statement
Annual Financial statements

39. Annual Financial Statements
Statement of financial performance
Statement of financial position
Statement of changes in Net Assets
Cash flow statement
Notes to the annual financial statements
Disclosure notes and annexures

40. Audit Committee Report
An audit committee report should cover:
Membership and attendance to committee meetings;
the effectiveness of the internal control systems;
the effectiveness of the internal audit function;
the risk areas of the entity’s operations to be covered in the scope of internal and external audits;
Significant accounting & auditing concerns, and follow up recommendations made by internal & external; and
the entity’s compliance with legal & regulatory provisions.

41. The Accounting Officer’s Report
Management’s opportunity to deal with the state of financial affairs, the activities and the results of the entity
Capacity constraints
Entity’s business strategy going forward
Managements response & plans to address any significant audit findings & SCOPA resolutions
Corporate Governance Arrangements
Entities reporting to the departments incl their compliance with PFMA
Organisations receiving transfer payments
Events after reporting date

42. The Audit Report Responsibilities of various stakeholders
Framework used to prepare the audited AFS
Audit opinion paragraph and emphasis of matter
Other matters:
Root causes (control environment, control activities, risk assessment, information and communication, monitoring & evaluation of controls)
Governance matters
Other reports issued during the year
Value for money matters
Any unaudited schedules
Other reporting responsibilities

43. Appropriation Statement
Content:
Includes a summary of the Appropriation Act according to the various programme and sub-programme allocations
Shifting and virement of funds
The actual expenditure split as above
Use of content for reader:
Variances between actual performance and compliance with adjusted budget with explanations for material variances in the notes
Links to the service delivery table in the AO’s review
Efficiency of the planning processes

44. Statement of Financial Performance
Content:
Overview of the entity’s total actual performance over the specified period with a surplus/deficit being the difference between amounts received and paid during the financial year
Use of content for reader:
Information in the appropriation statement analysed at an entity level in the economic classification
Understanding of the surplus/deficit: split into surplus/deficit on Appropriated funds, Departmental receipts and Local and foreign aid assistance.
Extent of unauthorised expenditure for the current year

45. PERFORMANCE ASSESSMENT
PFMA: FINANCIAL MANAGEMENT MODEL
LEGISLATURE/
COMMUNITY
INTERNAL
CONTROL
Policies & Priorities
STRATEGIC PLANS
Outcomes/Outputs
PERFORMANCE
REQUIREMENTS
Medium Term
Budget Process
Statement of Service
Delivery
DELEGATIONS
SERVICE DELIVERY
IMPROVEMENT
PROGRAMME
(Outputs)
EXECUTIVE AUTHORITY
(Outcomes)
IN-YEAR
MANAGEMENT
AND REPORTING
(Financial & non-
financial)
Performance Agreement
ACCOUNTING OFFICER
(Outputs)
BUDGET
(Outputs)
FINANCIAL
STATEMENTS/
ANNUAL REPORT
Performance Agreement
SENIOR MANAGERS
REVIEW AND
ASSESSMENT
PERFORMANCE ASSESSMENT
OF STAFF
ASB
- GRAP
- GAAP
INTEGRATED FINANCIAL MANAGEMENT SYSTEM
- Compilation of medium term budgets and costing of outputs
- Accounting system (accrual)
- Creditor, Debtor, Stock and Asset Systems
- Human Resource Management System
- Management information system (Financial and non-financial)

46. Thank you